Why are we ignoring simple, painless debt solution?

[editec]

The last thing in the world that the BANSTERS want is a balanced budget.

Doubt me?

Read Greenspan's Age of Turbulance.

He admits it.

 

[Toro]

The effects of deflation that would derive from the dissolved of debt created by the QE2's purchasing of Treasury bills would be far outweighed by the immediate positive impact of reducing national debt by over $1 trillion dollars.

The effects of the inflation specifically created by the QE2 program had a much more profound effect, adding to the already growing inflation, and devaluing of the dollar.

But you are overlooking to fact that the law stipulates that the FED only keep enough revenue collected on maturing Treasury bills as to off set operating costs, returning the vast percentage of those interest payments to the Treasury. The Treasury receives 90% of the tax money used to pay those T-bills.

Dissolving that debt would not have the profound negative impact that you are suggesting. There is a fundamental difference between the Federal Reserve's QE2 T Bills and the T bills held by foreign countries and Americans alike, in that only the FED returns the profits directly back to the Treasury and only the FED has the ability to fabricate money at will.

The QE program itself resulted in much more devaluing that this action would take.

If QE was inflationary - as I believe it was - then the dissolution of QE is deflationary. It also has the affect of raising interest rates. Deflation when there is 9% unemployment is not good for the economy. Raising interest rates during a recession is extremely bad policy. There is no reason at all to believe that this would be positive for the economy. It would lead to tight monetary conditions and deflation, and cause investors to lose even more confidence in the dollar.

"If QE was inflationary - as I believe it was - then the dissolution of QE is deflationary"

The dissolution of QE would be selling the Treasuries and extinguishing the proceeds.
Simply "canceling" the Treasuries would be inflationary.
If inflation ticks up, the Fed can sell bonds and extinguish the proceeds to shrink the money supply.
Cancel the bonds and what can the Fed do to shrink the money supply?

Canceling the Treasuries, or letting the Treasury portfolio run off, is deflationary. That's why the Fed recently said that even though it wasn't going to institute QE3 (yet), it will be buying Treasuries to replace the assets on its balance sheet that expire, which some are calling QE2.5 or QE lite.

 

[Oldstyle]

Are you kidding? You "really" think we don't have a debt crisis?

So I suppose you don't think Greece has one as well? Or California?

Not only do we HAVE a debt crisis but it is a crisis that is about to swallow us whole if we don't address it.

Here's my "simple" debt solution: Across the board cuts of 10% to ALL government programs this year followed by 5% cuts next year and another 5% the year after. Is there anyone out there that wants to argue that the Federal government doesn't have huge amounts of waste? My guess is that it's in the 30 to 40% of all monies spent. They waste that money because we've never held their feet to the fire and FORCED them to run efficiently. Gee whiz, folks...don't you think it's time we stopped playing that game?

 

[Toddsterpatriot]

If QE was inflationary - as I believe it was - then the dissolution of QE is deflationary. It also has the affect of raising interest rates. Deflation when there is 9% unemployment is not good for the economy. Raising interest rates during a recession is extremely bad policy. There is no reason at all to believe that this would be positive for the economy. It would lead to tight monetary conditions and deflation, and cause investors to lose even more confidence in the dollar.

"If QE was inflationary - as I believe it was - then the dissolution of QE is deflationary"

The dissolution of QE would be selling the Treasuries and extinguishing the proceeds.
Simply "canceling" the Treasuries would be inflationary.
If inflation ticks up, the Fed can sell bonds and extinguish the proceeds to shrink the money supply.
Cancel the bonds and what can the Fed do to shrink the money supply?

Canceling the Treasuries, or letting the Treasury portfolio run off, is deflationary. That's why the Fed recently said that even though it wasn't going to institute QE3 (yet), it will be buying Treasuries to replace the assets on its balance sheet that expire, which some are calling QE2.5 or QE lite.

Canceling the Treasuries has the opposite effect of letting them run off.

 

[Toro]

"If QE was inflationary - as I believe it was - then the dissolution of QE is deflationary"

The dissolution of QE would be selling the Treasuries and extinguishing the proceeds.
Simply "canceling" the Treasuries would be inflationary.
If inflation ticks up, the Fed can sell bonds and extinguish the proceeds to shrink the money supply.
Cancel the bonds and what can the Fed do to shrink the money supply?

Canceling the Treasuries, or letting the Treasury portfolio run off, is deflationary. That's why the Fed recently said that even though it wasn't going to institute QE3 (yet), it will be buying Treasuries to replace the assets on its balance sheet that expire, which some are calling QE2.5 or QE lite.

Canceling the Treasuries has the opposite effect of letting them run off.

It has the same effect.

 

[Toddsterpatriot]

Canceling the Treasuries, or letting the Treasury portfolio run off, is deflationary. That's why the Fed recently said that even though it wasn't going to institute QE3 (yet), it will be buying Treasuries to replace the assets on its balance sheet that expire, which some are calling QE2.5 or QE lite.

Canceling the Treasuries has the opposite effect of letting them run off.

It has the same effect.

Letting them run off shrinks the money supply.
Canceling them does not.
It also sends the message that the Fed might just create money and give it to the government to spend. Seems like that might be inflationary.

 

[Toro]

Canceling the Treasuries has the opposite effect of letting them run off.

It has the same effect.

Letting them run off shrinks the money supply.
Canceling them does not.
It also sends the message that the Fed might just create money and give it to the government to spend. Seems like that might be inflationary.

Treasury bills that run off or are canceled has the same effect. Treasury bills are assets of the Federal Reserve. When Treasuries run off, the assets of the Fed decreases. When Treasuries are canceled, the assets of the Fed decreases. All assets must equal all liabilities. The liabilities of the Fed constitute part of the money supply. Because assets must equal liabilities, when assets of the Fed fall, liabilities - and the supply of money - also falls. A contraction of the supply of money is deflationary. That's why the Fed is not allowing their balance sheet to shrink and are buying Treasuries as their mortgage and Treasury bonds run off.

 

[Toddsterpatriot]

It has the same effect.

Letting them run off shrinks the money supply.
Canceling them does not.
It also sends the message that the Fed might just create money and give it to the government to spend. Seems like that might be inflationary.

Treasury bills that run off or are canceled has the same effect. Treasury bills are assets of the Federal Reserve. When Treasuries run off, the assets of the Fed decreases. When Treasuries are canceled, the assets of the Fed decreases. All assets must equal all liabilities. The liabilities of the Fed constitute part of the money supply. Because assets must equal liabilities, when assets of the Fed fall, liabilities - and the supply of money - also falls. A contraction of the supply of money is deflationary. That's why the Fed is not allowing their balance sheet to shrink and are buying Treasuries as their mortgage and Treasury bonds run off.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
In 30 days the T-Bill matures, the Treasury pays the Fed $1 billion, the Fed extinguishes the $1 billion and the money supply shrinks by $1 billion. Back where we started.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
The Fed "cancels" the T-Bill. The money supply remains $1 billion higher.

 

[Contumacious]

Letting them run off shrinks the money supply.
Canceling them does not.
It also sends the message that the Fed might just create money and give it to the government to spend. Seems like that might be inflationary.

Treasury bills that run off or are canceled has the same effect. Treasury bills are assets of the Federal Reserve. When Treasuries run off, the assets of the Fed decreases. When Treasuries are canceled, the assets of the Fed decreases. All assets must equal all liabilities. The liabilities of the Fed constitute part of the money supply. Because assets must equal liabilities, when assets of the Fed fall, liabilities - and the supply of money - also falls. A contraction of the supply of money is deflationary. That's why the Fed is not allowing their balance sheet to shrink and are buying Treasuries as their mortgage and Treasury bonds run off.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
In 30 days the T-Bill matures, the Treasury pays the Fed $1 billion, the Fed extinguishes the $1 billion and the money supply shrinks by $1 billion. Back where we started.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
The Fed "cancels" the T-Bill. The money supply remains $1 billion higher.

That is the mission of the Federal Reserve Board - to create an "elastic currency" through fractional reserve banking . Their mismanagement caused the US to default for the first time in our history in 1935.

.

 

[8537]

Why does the source of Fed income impact shareholder dividends?

Because if it's their own deposits the bank is getting paid 1%.

What does the rate the "Fed pays on deposits" have to do with what the dividends?

The rate paid on the deposits determines in part how much the Fed has to pay in dividends.

Banks are not paid 1% by the Fed.

How much the Fed must pay?
Or how much the Fed has availble to pay?

The Fed is currently paying 1% on bank reserves for member banks.

 

[Toddsterpatriot]

Because if it's their own deposits the bank is getting paid 1%.



The rate paid on the deposits determines in part how much the Fed has to pay in dividends.

Banks are not paid 1% by the Fed.

How much the Fed must pay?
Or how much the Fed has availble to pay?

The Fed is currently paying 1% on bank reserves for member banks.

Link?

 

[jillian]

The media has reminded the American people several times throughout this debt limit debate that the national debt currently stands at $14 trillion, of which conservatively $1 trillion is held by the Federal Reserve. The Federal Reserve obtained that debt through its complicated quantitative easing programs (Quantitative easing - Wikipedia, the free encyclopedia) –more specifically QE2-- but it is debt that the government essentially owes itself.

Why?

“The Treasury pays the interest on the debt on behalf of the U.S. government to the Fed, which in turn returns 90 percent of the payments it gets back to the Treasury. Nonetheless, that $1.7 trillion in U.S. bonds that the Fed owns, despite the shell game of payments, is still counted in the debt ceiling number, which caps that amount of total federal debt at $14.3 trillion.” (Debt Ceiling: Could Ron Paul's Plan Save Us From Disaster, twice? - The Curious Capitalist - TIME.com)

Neither Republican, Democrat nor the media, despite all telling Americans that Armageddon will occur if something isn’t done, have brought up the fact that Congress could simply tell the Federal Reserve to dissolve the Treasury Bills it currently holds, effectively reducing the national debt by $1 trillion.

Unlike all other proposals this one doesn’t endanger anyone’s retirement or pension because it is money that was literally fabricated from thin air.

I believe we can all agree, from right to left, that this debt is in fact phony debt. Even the progressive/leftist ‘The New Republic’ (Ron Paul) agrees that this is a painless solution that would reduce the debt by $1 trillion and would give Congress needed time to address this issue.

Of course this isn’t my idea—I wish I were so clever—it is the proposal that Congressman Ron Paul has been pushing since the beginning of this whole debt ceiling debate.

What you are implying would have a very Negative effect on the value of our Currency. QE2 Was simply Printing money out of thin air. What you are suggesting is we do not back up that printing. Which could only drive the Value of the Dollar down even further.

I would also point out that you seem to lack a basic understanding of how it works. You Implied that the Government essentially owes it to it's self. The Truth is the Federal Reserve is independent. Not Honoring 1 Trillion in Debt to the Fed would come with all the same negative Credit Issues not honoring any other debt would, with the added Bonus of Devaluing our money some More.

If this so called simple, Painless Solution were Viable, Obama and the Dems would most certainly be pushing for it.

he isn't thinking this out very clearly.

 

[8537]

Banks are not paid 1% by the Fed.

How much the Fed must pay?
Or how much the Fed has availble to pay?

The Fed is currently paying 1% on bank reserves for member banks.

Link?

FRB: Press Release--Board announces that it will begin to pay interest on depository institutions required and excess reserve balances--October 6, 2008

I apparently had the amount wrong - it was 1% when the program started (as a means to establish an interest rate floor) but has now fallen to about .25%.

 

[Toddsterpatriot]

The Fed is currently paying 1% on bank reserves for member banks.

Link?

FRB: Press Release--Board announces that it will begin to pay interest on depository institutions required and excess reserve balances--October 6, 2008

I apparently had the amount wrong - it was 1% when the program started (as a means to establish an interest rate floor) but has now fallen to about .25%.

Excellent! You learn something new every day.

 

[Toro]

Letting them run off shrinks the money supply.
Canceling them does not.
It also sends the message that the Fed might just create money and give it to the government to spend. Seems like that might be inflationary.

Treasury bills that run off or are canceled has the same effect. Treasury bills are assets of the Federal Reserve. When Treasuries run off, the assets of the Fed decreases. When Treasuries are canceled, the assets of the Fed decreases. All assets must equal all liabilities. The liabilities of the Fed constitute part of the money supply. Because assets must equal liabilities, when assets of the Fed fall, liabilities - and the supply of money - also falls. A contraction of the supply of money is deflationary. That's why the Fed is not allowing their balance sheet to shrink and are buying Treasuries as their mortgage and Treasury bonds run off.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
In 30 days the T-Bill matures, the Treasury pays the Fed $1 billion, the Fed extinguishes the $1 billion and the money supply shrinks by $1 billion. Back where we started.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
The Fed "cancels" the T-Bill. The money supply remains $1 billion higher.

The money supply shrinks by $1 billion. The money supply affected by the Fed isn't just currency in circulation. It is also Fed credit, whether that is in the fund's market or bank reserves held at the Fed, etc. A $1 billion decline in assets must mean a $1 billion decline on the liability side somewhere, whether that's bank reserves or whatever, and the liability side of the balance sheet is the money supplied by the Fed.

 

[Toddsterpatriot]

Treasury bills that run off or are canceled has the same effect. Treasury bills are assets of the Federal Reserve. When Treasuries run off, the assets of the Fed decreases. When Treasuries are canceled, the assets of the Fed decreases. All assets must equal all liabilities. The liabilities of the Fed constitute part of the money supply. Because assets must equal liabilities, when assets of the Fed fall, liabilities - and the supply of money - also falls. A contraction of the supply of money is deflationary. That's why the Fed is not allowing their balance sheet to shrink and are buying Treasuries as their mortgage and Treasury bonds run off.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
In 30 days the T-Bill matures, the Treasury pays the Fed $1 billion, the Fed extinguishes the $1 billion and the money supply shrinks by $1 billion. Back where we started.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
The Fed "cancels" the T-Bill. The money supply remains $1 billion higher.

The money supply shrinks by $1 billion. The money supply affected by the Fed isn't just currency in circulation. It is also Fed credit, whether that is in the fund's market or bank reserves held at the Fed, etc. A $1 billion decline in assets must mean a $1 billion decline on the liability side somewhere, whether that's bank reserves or whatever, and the liability side of the balance sheet is the money supplied by the Fed.

You are mistaken.
If the Fed exchanges Treasuries for cash and extinguishes the cash, both assets and liabilities shrink.
If the Fed "cancels" some assets, liabilities remain unchanged.

 

[Toro]

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
In 30 days the T-Bill matures, the Treasury pays the Fed $1 billion, the Fed extinguishes the $1 billion and the money supply shrinks by $1 billion. Back where we started.

The Fed creates $1 billion and buys a 30 day T-Bill.
The money supply has increased by $1 billion.
The Fed "cancels" the T-Bill. The money supply remains $1 billion higher.

The money supply shrinks by $1 billion. The money supply affected by the Fed isn't just currency in circulation. It is also Fed credit, whether that is in the fund's market or bank reserves held at the Fed, etc. A $1 billion decline in assets must mean a $1 billion decline on the liability side somewhere, whether that's bank reserves or whatever, and the liability side of the balance sheet is the money supplied by the Fed.

You are mistaken.
If the Fed exchanges Treasuries for cash and extinguishes the cash, both assets and liabilities shrink.
If the Fed "cancels" some assets, liabilities remain unchanged.

How is that recorded on the balance sheet?

 

[Toddsterpatriot]

The money supply shrinks by $1 billion. The money supply affected by the Fed isn't just currency in circulation. It is also Fed credit, whether that is in the fund's market or bank reserves held at the Fed, etc. A $1 billion decline in assets must mean a $1 billion decline on the liability side somewhere, whether that's bank reserves or whatever, and the liability side of the balance sheet is the money supplied by the Fed.

You are mistaken.
If the Fed exchanges Treasuries for cash and extinguishes the cash, both assets and liabilities shrink.
If the Fed "cancels" some assets, liabilities remain unchanged.

How is that recorded on the balance sheet?

You tell me, you're the one who wants to make a one-sided entry.

 

[Toro]

You are mistaken.
If the Fed exchanges Treasuries for cash and extinguishes the cash, both assets and liabilities shrink.
If the Fed "cancels" some assets, liabilities remain unchanged.

How is that recorded on the balance sheet?

You tell me, you're the one who wants to make a one-sided entry.

What? You just said that liabilities are unchanged. So you are the one making a one-sided entry.

When the Fed brings assets onto its balance sheet, liabilities must go up. Likewise, when assets fall, liabilities must go down. They must balance. Liabilities of the Fed - primarily currency and bank reserves - are part of the money supply. So when any asset is removed from the balance sheet of the Fed for any reason, liabilities - the money supply - falls.

This is one reason why Paul's proposal is DOA.

 

[Contumacious]

How is that recorded on the balance sheet?

You tell me, you're the one who wants to make a one-sided entry.

What? You just said that liabilities are unchanged. So you are the one making a one-sided entry.

When the Fed brings assets onto its balance sheet, liabilities must go up. Likewise, when assets fall, liabilities must go down. They must balance. Liabilities of the Fed - primarily currency and bank reserves - are part of the money supply. So when any asset is removed from the balance sheet of the Fed for any reason, liabilities - the money supply - falls.

This is one reason why Paul's proposal is DOA.

Audit the Federal Reserve


The Federal Reserve is the chief culprit behind the economic crisis. Its unchecked power to create endless amounts of money out of thin air brought us the boom and bust cycle and causes one financial bubble after another. Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by recklessly inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar.

Audit the Federal Reserve

.